Bone Biologics Corp annual report, FY2019

Bone Biologics Corporation — FY 2019 Form 10-K

Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a separate fourth-quarter filing. Bone Biologics is a development-stage medical-device company developing NELL-1/DBX for bone regeneration in spinal fusion; it reported no revenue.

Financial results and liquidity

Metric20192018
Revenue$0$0
Research and development expense$1,095,176$104,490
General and administrative expense$1,352,258$2,686,399
Total operating expenses$2,447,434$2,790,889
Net loss$3,424,811$4,430,399
Operating cash used$3,251,229$4,104,884
Cash at year-end$24,145$955,374
  • No gross margin or operating margin is meaningful because the company had no revenue.
  • At December 31, 2019, total assets were $30,827, total liabilities were $11,898,447, and stockholders’ deficit was $11,867,620. Current assets of $30,827 compared with current liabilities of $578,447 indicate very limited short-term liquidity.
  • Related-party notes payable to Hankey Capital totaled $11.32 million, generally bearing 8.75% interest. The debt is secured by company assets; certain notes are also secured by collateral shares. The company reported $780,000 available under a Hankey Capital credit facility at year-end.
  • Financing activities provided $2.32 million in 2019, from draws on Hankey Capital credit facilities. Management said it continued deferring 20% of management wages and 50% of director cash compensation.

Changes versus 2018

  • Net loss narrowed by about 22.7%, and operating cash use declined. The company attributed lower cash expenditures partly to timing of the large-animal study and executive compensation changes.
  • R&D expense increased substantially, primarily reflecting costs associated with the large-animal pivotal study; 2018 R&D was unusually low following a stock-option valuation adjustment.
  • G&A expense decreased about 49.7%, mainly due to forfeited deferred compensation and lower amortization of management options. Interest expense also declined; the 2018 debt-extinguishment loss did not recur.
  • Cash fell from $955,374 to $24,145. Notes payable increased from $9.0 million to $11.32 million, and outstanding common shares increased from 26,448,881 to 30,682,590, including shares issued as loan collateral.

Business outlook, risks and contingencies

  • The lead candidate, NELL-1/DBX, combines recombinant NELL-1 protein with MTF’s DBX demineralized bone putty. The company reports preclinical work, initiation of a pivotal animal study, and HREC approval for the first center of a planned 30-patient pilot study in Australia. The filing also says it filed for a Phase I trial outside the United States; it does not establish that human enrollment or treatment had begun.
  • The FDA indicated the product is a combination product regulated under device authorities, with CDRH as lead, and the company expects a Class III PMA pathway. FDA approval, successful clinical trials, manufacturing readiness, and commercialization remain uncertain.
  • Management estimated operating expenditures of $6.4 million for the next 12 months, an additional $20 million to complete protein synthesis and animal studies and commence first-in-human studies, and a further $45 million to reach a spine interbody fusion product launch. These are estimates, not committed funding.
  • The independent auditor highlighted substantial doubt about the company’s ability to continue as a going concern. The company had accumulated losses of approximately $67.0 million and said future operations depend on additional financing; failure to obtain funds could force it to scale back or discontinue development or operations. The filing also noted uncertainty about how COVID-19 could affect financing availability, cost, and type.
  • Hankey Capital and its affiliates held significant voting influence and provided the company’s principal financing. The filing reports approximately 89% ownership/control including collateral shares; this creates financing concentration, related-party conflict, and potential dilution risks.
  • A July 2019 lawsuit concerning termination of professional service agreements remained at an early stage; the company could not estimate a possible loss. A separate shareholder lawsuit concerning the 2018 financing and reverse split was dismissed in July 2019.
  • The company reported that disclosure controls and internal control over financial reporting were effective at December 31, 2019. A prior-year material weakness and the company’s limited staffing remain relevant context; it had one full-time employee as of the filing.

Important facts for investors to verify

  • Current cash runway, subsequent financing, and whether Hankey Capital will continue funding; the filing reports additional $64,000 drawn on its second facility after year-end.
  • Exact debt terms and maturities: the filing contains differing maturity disclosures for the September 2019 facility, so confirm the operative note amendments and repayment dates.
  • Actual clinical and regulatory progress, including whether the Australian study began enrollment and the status of FDA discussions, pivotal animal work, and PMA requirements.
  • Funding required to reach first-in-human studies and launch, and whether the stated $20 million and $45 million estimates have changed.
  • Effects of collateral shares, conversion rights, future financing, and concentrated voting control on dilution and common-stockholder rights.
  • Status and potential financial exposure of the pending professional-services litigation.